AgentMortgage

Reverse mortgages under pressure

Part 1: State of the 'reverse' market
Published on Dec 28, 2009

Editor's note: This is Part 1 of a six-part series. Read Part 2, Part 3, Part 4, Part 5 and Part 6. A reverse mortgage is a loan to an elderly homeowner on which the borrower's debt rises over time, but which needn't be repaid until the borrower dies, sells the house or moves out permanently. The role of the reverse mortgage is to put more money in the pockets of seniors by allowing equity depletion while they are still alive. The "forward" mortgages that are used to purchase homes build equity -- the value of the home less the mortgage balance. Borrowers pay down the balance over time, and by age 62, when they become eligible for a reverse mortgage, loan balances are either paid off or much reduced. Reverse mortgages, in contrast, consume equity because loan balances rise over time. If there is a balance remaining on a forward mortgage at the time a reverse mortgage is taken out, it is paid off with an advance under the reverse mortgage. The HECM program: Virtu...

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